Despite its criticism of the GST regime, the World Bank feels that the benefits of GST will outweigh its negatives in the long run.

New Delhi: The World Bank has termed India's Good and Services Tax (GST) regime as one of the most complex systems in the world, adding that it has the second-highest tax rate in the world, out of a sample of 115 countries that follow a similar indirect taxation system. The 'One Nation One Tax' regime has created a lot of ripples across sectors, who had initially asked the government to roll it out in a systemic manner to avoid confusion. However, the Narendra Modi-led Government introduced the measure from July 1, 2017.

It may be noted that India's GST structure consists of five slabs - 0, 5%, 12%, 18%, and 28%. However, experts had earlier pointed out that the GST structure followed in India is far more complex than other countries as there are so many tax slabs. The government had promised that it would reduce tax slabs as soon as the system sinks in properly. While prices of some products have witnessed a decrease, a majority of the products are now available at higher prices. In the present architecture, exporters are allowed to claim refunds for taxes paid on inputs, however, several problems in the filing system and regulatory disruptions have caused a delay in such payments.

Further, the World Bank report noted that as many as 49 countries in the world follow a single structure GST regime, while 28 countries use two slabs, leaving only five countries - including India - that use four non-zero slabs, report. As mentioned earlier, Finance Minister Arun Jaitley said earlier that the 12 percent and 18 percent GST rates would be merged once tax compliance improves in the country. However, there has been little or no modification in tax slabs, even as eight months have passed away since its inception.

While some issues have been fixed, there is a pool of glitches that need to be fixed for a smooth GST architecture. According to the World Bank's bi-annual India Development Update released Wednesday, the introduction of GST has been accompanied by myriad disruptions at the state level. Lack of clarity, five tax slabs, and discontinuation of local taxes are some of the key reasons that played a role in disrupting financial operations of Indian states.

The report went on to highlight earlier studies, which suggested that higher administrative tax compliance led to increased tax burden on firm and also locked up working capital due to slow tax rebate process.

“High compliance costs are also arising because the prevalence of multiple tax rates implies a need to classify inputs and outputs based on the applicable tax rate. Along with the need to apply the correct rate, firms are required to match invoices between their outputs and inputs to be eligible for full input tax credit, which increases compliance costs further,” the report added.

Despite its criticism of the GST regime, the World Bank feels that the benefits of GST will outweigh its negatives in the long run. “Key to success is a policy design that minimizes compliance burden, for example by minimizing the number of different rates and limiting exemptions, with simple laws and procedures, an appropriately structured and resourced administration, compliance strategies based on a balanced mix of education and assistance programs and risk-based audit programs,” it added.

India's GST regime one of the 'most complex' in world, says World Bank Description:Despite its criticism of the GST regime, the World Bank feels that the benefits of GST will outweigh its negatives in the long run. Times Now